The Sydney property market is as famous for its roller-coaster nature as it is for its harbor views.

For many first home buyers, 2025 feels like the year to “finally” break into the property market – if the stars align, that is. But the question looms large: will this be the year that Sydney finally levels off, or are we heading for yet another upward climb?

Below I’ll unpack what I believe 2025 might have in store for Sydney’s housing market, backed by data and fundamentals. Recall, I predicted the COVID surge in pricing, as well as 2023 being ‘year of the first home buyer’. My predictions tend to be rather accurate.

We’ll break down the factors likely to shape the 2025 market, from economic shifts to generational demand. And don’t worry – I’ll keep it smart, witty, and a little cheeky along the way, because the Sydney property market could use a laugh.

The Cooling Effect of Rising Interest Rates

After a series of rapid-fire interest rate hikes in 2023 and 2024, the Reserve Bank of Australia (RBA) has left first home buyers wondering if the cooling effect will extend into 2025.

Higher rates typically dampen buyer enthusiasm and restrict borrowing capacity, yet Sydney’s market resilience has shown that its demand is no ordinary beast. For the first home buyer waiting for a significant market correction, the question becomes: how much cooling are we really talking about?

Let’s take a quick data snapshot – in the second half of 2024, data from CoreLogic showed a slight dip in median property prices, with Sydney’s property values softening by about 3-5% in some areas.

But this is Sydney – meaning demand is less a flame and more a wildfire. With limited housing stock and Australia’s migration numbers still climbing, demand is likely to remain strong, even as interest rates act as a restraining influence.

A good way to think of it is the Sydney property market hitting the “snooze” button rather than shutting off. It’s slowed down, but don’t expect it to nap through 2025.

A New Migration Wave and Its Impact

Australia’s migration policies have swung wide open in the post-pandemic world, and Sydney, as the country’s largest city, remains a top destination. The demand from new arrivals places additional pressure on an already tight housing market, especially in areas with solid infrastructure, schools, and amenities.

According to ABS data, Australia expects a significant rise in migration levels in the coming years, with Sydney absorbing a large share. This influx is expected to add thousands of prospective buyers and renters to the market annually, pushing demand in key Sydney regions, especially in the more affordable outskirts where first home buyers often compete with investors.

SQM Research predicts that suburbs like Parramatta, Merrylands, Liverpool, and Blacktown could experience an uptick in buyer competition due to migration-driven demand. While the inner-city property prices may plateau, outer areas might see stable or even increased demand, sustaining price levels.

Migration might be Sydney’s perennial property market “guest star,” always showing up just in time to complicate predictions and keep first home buyers on their toes.

Feel free to check out migration stats and housing impact analysis at ABS Migration Statistics: https://www.abs.gov.au/.

High Demand Meets Low Supply aka The Great Housing Squeeze

In classic Sydney fashion, demand outstrips supply. Government incentives and zoning changes may attempt to address housing shortages, but meaningful supply increases take many years to materialize.

With vacancy rates hitting rock-bottom levels in 2024 – hovering around 1.3%, per Domain, the rental and ownership markets remain starved for inventory.

When listings are scarce, prices typically remain high, even if demand softens slightly. For first home buyers, this “supply drought” means more competition, tighter budgets, and potentially higher prices, especially for entry-level homes in popular suburbs.

Domain’s latest report notes that the number of new listings in Sydney has consistently trailed demand, particularly in affordable suburbs. Without a surge in construction or listings, expect this shortage to keep a floor under prices.

It’s like shopping for an umbrella in a rainstorm. You’ll probably pay extra, even if the selection is subpar.

For updated housing supply and demand reports, visit Domain Property Insights: https://www.domain.com.au/.

Government Policies: More Talk Than Action?

2024 saw the Australian government announcing several initiatives aimed at first home buyers, from increased grants to changes in stamp duty. But in 2025, the effectiveness of these policies will come under scrutiny.

Programs that help first home buyers compete are a nice idea, but if supply remains limited and the grants only fuel more competition, they may end up inadvertently driving prices up.

I genuinely don’t believe the government has thought through the reality of the situation. Their policies and incentives for first home buyers in particular are merely band-aid solutions to a growing, systemic problem.

Come 2025 we can expect government policy to continuing being both a help and a hindrance. Incentives are popular, but if they don’t address the supply issue directly, they can create a “false floor” under property prices, making Sydney’s already expensive market even more challenging to enter.

Domain’s analysis shows that when grants were increased in 2023, the average entry-level property price rose by 5-7% in the following months, negating some of the affordability benefits for first-home buyers.

Government policies might be the gift that giveth…and then taketh away.

For the latest on government property policies, Domain’s Property News at https://www.domain.com.au/news/ is a valuable resource.

When Will Affordability Return to Sydney?

Ah, the million-dollar question (or more accurately, the $1.5 million question in Sydney terms): when will Sydney’s property market become more affordable for first home buyers? While no one has a crystal ball, the trends suggest a complex road ahead. Economic uncertainty, high interest rates, and demographic shifts all add to the unpredictability.

In my opinion, we’d need migration rates to stabilize, interest rates to not decrease, and housing supply to increase, if we are to see a substantial softening of prices in 2025. An uptick in unemployment levels may also be a catalyst for house price decline.

According to SQM Research’s long-term predictions, Sydney’s property prices may experience modest declines in select areas in 2025, especially those that lack infrastructure growth or become less attractive due to distance from job hubs. However, in-demand areas will likely retain or grow in value.

One of the big four banks, NAB, has recently predicted continued growth for Sydney in 2025, albeit at a slower level than the current year. Even less-than-current growth rates for Sydney still equal a lack of affordable housing in Sydney.

The affordability return is a bit like waiting for a bus that’s always just around the corner – you may be in for a long wait, but every once in a while, it actually arrives.

So, Should You Buy in 2025?

For first home buyers who can stomach the market’s uncertainty and navigate current interest rates, buying in 2025 could still be a wise move – especially in up-and-coming Sydney suburbs where values haven’t peaked.

However, this is no market for the faint-hearted or the ill-prepared. Having a solid plan, realistic budget, and a trusted property pro partner like Yours Truly is essential.

Why Choose Kitty & Miles?

In a market as complex and competitive as Sydney, first home buyers need every advantage they can get. That’s where Kitty & Miles come in.

As a trusted, multi-award winning Property Buyers Agent in Sydney, Kitty & Miles bring post-grad university-level expertise, insider knowledge, and award-winning strategic negotiation skills to your property journey. 

From understanding which suburbs offer the best value to securing the right deal amid Sydney’s high prices, Kitty & Miles are here to support your goal of homeownership in 2025. We know the Sydney property market like the back of our hand, and we’re ready to guide you through it.

Contact Kitty & Miles today to start your property journey and make 2025 the year you take a step into Sydney’s property market with confidence. 

2024 It’s a Wrap, Let’s Bring On 2025

As 2025 approaches, Sydney’s property market is poised for another year of excitement, challenges, and opportunities. While affordability remains a hurdle, first home buyers equipped with knowledge and support have options.

For those ready to dive into the market, the next year may bring a chance to find your place in Sydney – even if it requires patience and strategy.

So, keep your eyes on the market trends, enlist the help of a trusted Buyers Advocate, and consider this your rallying call: Sydney may be complex, but with the right guidance, it’s not impossible.